E-mail comments and questions to: garry@openinterestanalyst.com
Soybeans:
For the week, July soybeans lost 15 1/4 cents, and the August contract lost 8 1/2 cents.The Commitment of Traders Report showed that in the managed money category, speculators added 10,683 contracts to their long positions, and added 1,628 contracts to their short positions. Commercial interests liquidated 24,219 of their long positions, and also liquidated 3,623 of their short positions. As of the latest report, managed money is long by a ratio of 31 to 1.
As I’ve mentioned in past Weekend Wrap reports soybean meal continues to be the leader of the bean complex. For the week, July soybean meal was up by .98% and soybeans was down 1.02%. On a year-to-date basis July soybean meal was up 35.61% and July soybeans were up just 20.48%.
Soybean meal: The Commitment of Traders Report showed that in the managed money category speculators liquidated 4,093 contracts, and also liquidated 692 contracts of their short positions. Commercial interests liquidated 2,174 contracts of their long positions, and also liquidated 8,615 of their short positions. As of the latest report, managed money speculators are long by a ratio of 31 to 1. I believe that the soybean meal market is on the verge of making a historical move higher. However, like soybeans, meal is massively overbought and the heavy long positions held by speculators makes beans and meal vulnerable to a a further correction.
Corn:
For the week, July corn gained 5 1/4 cents. The contracts of September 2012 through July 2013 lost between 14 1/4 cents and 16 1/2 cents. We are seeing the kind of strength in the July contract that we saw in the May contract. As a matter of fact, May corn closed Friday at a 42 cent premium to July. This is bullish market action. The Commitment of Traders Report, which is tabulated on Tuesday and released Friday showed that in the managed money category, speculators liquidated 2,000 contracts of their long positions, and also liquidated 9,037 contracts of their short positions. Commercial interests liquidated 39,124 contracts of their long positions, and also liquidated 21,558 contracts of their short positions. The massive decline of open interest during the past two weeks has been caused primarily by commercial interests. The big speculative money interests liquidated just a fraction of their holdings. As of the latest report, managed money is still long by a 2 to 1 margin.
Crude oil:
For the week, June crude oil lost $6.44. The Commitment of Traders Report showed that in the managed money category, speculators added 20,790 contracts of their long positions, and liquidated 789 contracts of their short positions. Commercial interests added 1,564 contracts to their long positions, and also added 10,145 contracts to their short positions. It appears that large speculators added to their long positions at precisely the wrong time. During the reporting period of the Commitment of Traders Report, which covers the period of April 25 through May 1, June crude oil traded from a low of $103.11 to a high of $1 06.43. Obviously, large numbers of traders got whacked on Friday. The market has been on a short-term sell signal since March 29, and although an intermediate term sell signal has not been generated as of Friday, it is highly likely that one will be generated on Monday, May 7. Stand aside.
Gasoline:
For the week, June gasoline lost 16.87 cents. The Commitment of Traders Report showed that in the managed money category, speculators added 1,572 contracts to their long positions, and also added 553 contracts to their short positions. Commercial interests liquidated 37,687 contracts of their long positions, and also liquidated 32,260 contracts of their short positions. The massive open interest decline that we’ve seen in gasoline during the reporting period (April 25-May 1) of the Commitment of Traders Report has occurred among commercial interests, but not among large speculators. The reason for this may be that during the reporting period, gasoline declined only 2.40 cents.
Gasoline peaked at $3.4278 on April 3 for the May contract. April 3 was on Tuesday, which is the cut off date for the tabulation of Commitment of Traders Report that is released on Friday. On April 3, the Commitment of Traders Report showed that in the managed money category speculators held long positions by a ratio of 34.7 to 1. As of the latest reporting period tabulated on May 1, managed money is still long gasoline by a ratio of 30 to 1 despite the loss in July gasoline of 26.94 cents from the high made on April 3 ($3.3439) to the low on May 1 ($3.0745).
In previous posts I have said that my target to buy gasoline was down at the 200 day moving average of approximately $2.92. However, I believe speculators should continue to stand aside until we see more liquidation by speculators in the managed money category.
To provide some perspective on petroleum prices, I am listing the closing prices on May 4, 2012, 2011 and 2010.
May 4, 2011 May 4, 2010 May 4, 2012
June crude oil: $109.24 June crude oil: $82.74 June crude oil: $98.49
June heating oil: $3.1430 June heating oil: $2.2595 June heating oil: 3.0088
June gasoline: $3.3225 June gasoline: $2.3222 June gasoline: 2.9 758
Copper:
For the week, July copper lost 10.40 cents. The Commitment of Traders Report showed that in the managed money category speculators added 4,186 contracts to their long positions, and liquidated 9,189 contracts of their short positions. Commercial interests liquidated 4,105 contracts of their long positions and added 778 contracts to their short positions. As of the latest report managed money is long by a ratio of 1.8 to 1. Copper remains on a short-term sell signal, and a intermediate term buy signal. Please read the section on the Australian dollar.
Gold:
For the week, June gold lost $19.60. The Commitment of Traders Report showed that in the managed money category speculators added 4,159 contracts to their long positions and liquidated 2,547 contracts of their short positions. Commercial interests added 282 contracts to their long positions, and also added 8,728 contracts to their short positions.
Silver:
For the week, July silver lost 97.9 cents. The Commitment of Traders Report showed that in the managed money category, speculators liquidated 725 contracts of their long positions, and also liquidated 571 contracts of their short positions. Commercial interests liquidated 1,611 contracts of their long positions, and also liquidated 2,877 contracts of their short positions. It is fairly rare to see a week when both large speculators and commercial interests are liquidating both long and short positions. This sums up the current state of the silver market.
Euro:
For the week, the June Euro lost 1.73 cents. The Commitment of Traders Report showed that in the leveraged funds category, managed money liquidated 10,602 contracts of their long positions, and also liquidated 4,507 contracts of their short positions. As of the latest report leveraged funds hold short positions by a ratio of 2.6 to 1. As I write this on Sunday, the early report is that Francois Hollande has won the election as President of France. This is going to be a bearish development for the Euro. Also, the results of the Greek election, will bring in the parties on the far left and far right. This is another negative for the Euro. My thinking is that speculators should stand aside and wait for the dust to clear.
S&P 500 E mini:
For the week, the June S&P 500 E mini lost 36.00 points. The Commitment of Traders Report showed that in the leveraged funds category, speculators added 60,416 contracts to their long positions, and also added 28,916 contracts to their short positions. As of the latest report, leveraged funds hold short positions by a ratio of 1.6 to 1.
The performance of the S&P 500 E mini for the month of April came in at a -.70%. This performance was the worst since 2005 when the S&P 500 E mini lost 2.17%. Going back to the year 2000, there were three additional years when performance was negative for April: 2000 (-3.67%), 2002 (-6.29%), 2004 (-1.69%).
The performance of the S&P 500 E mini during the period of January 1 through April 30, 2012 was outstanding with a +11.72% gain. This was the best performance for the June S&P 500 E mini since 1998. Below, I am providing the best performing years going back to 1983, and then listing how the best performers fared in the subsequent May 1 to June 30 timeframe.
Performance S&P 500 E mini January 1-April 30 (1983-2012)
1987: + 19.09%
1983: +15.13%
1998: +13.13%
1991: +12.67%
2012: +11.72%
1995: +10.90%
Performance S&P 500 E mini May 1-June 30
1987: +4.10%
1983: +2.81%
1998: +1.01%
1991: -1.70%
1995: +4.94%
Five-year average performance: +2.23%
Australian Dollar:
I have been been bearish on the Australian dollar for quite some time, and had previously suggested that speculators with bearish positions use the March 28 high of 1.0388 is an exit point. Beginning on April 25, 2012, the market embarked upon a three-day rally that took the Australian dollar up 2 cents to a high of 1.0422 on April 27. At this point, speculators should have exited their bearish positions. On April 30, the market the market started rolling over and closed lower for the next four days. As a result, on May 4 the market generated a short-term sell signal. For the first two days of the decline, open interest declined by a total of 6,151 contracts, which is positive. However, that changed on May 2 and 3 when open interest increased by a total of 4,071 contracts on a price decline of 1.49 cents.
The current dilemma facing speculators who are bearishly inclined toward the Australian dollar is there are numerous crosscurrents at this particular time that make a bearish call difficult. First, although the Australian dollar is not part of the dollar index, the dollar index is on a short-term sell signal, thereby signaling strength in dollar index components (Euro, British Pound, Japanese Yen, Canadian Dollar). This may very possibly give the Australian dollar a lift. On the other hand, as noted in the above section on the Euro, the elections in France and Greece will likely impact the Euro negatively. This would act to propel the dollar index higher, and in all likelihood send the Australian dollar sharply lower.
The other issue is the high relative strength of copper. Although copper’s open interest action has been disappointing to the bulls, the fact remains it is on an intermediate term buy signal. Copper has not generated a short-term buy signal, which would make it a candidate for long positions. Australia is a major copper and iron ore producer, and their primary market for commodities is China. Is the stability in copper prices signifying some underlying strength in the Chinese market? Please see the comment below on the Australian ASX index.
However, my main concern with respect to further downside in the Australian dollar has been the terrific performance of the Shanghai Composite Index. Since making a low on March 29 at 2242.34, the market closed at 2452.01 on May 4, or a rally of approximately 10%. It is highly likely the market is having a very strong rebound in response to the slide in the index, which has been going on for quite a while. I suspect the Shanghai Composite Index is undergoing a countertrend rally in a longer term bear market. With respect to the Australian dollar, speculators should stand aside.
World Indices:
The FTSE 100 closed at 5655.06, which is a scant 92 points from the 200 day moving average of 5563.75, which has acted has support for all of 2012.
The Indian SENSEX 30, which is traded on the Bombay Stock exchange is not acting well on a short or longer-term basis. For example, on May 4, the index closed its 200 day moving average of 16920.84 for the first time since January 31, 2012.
The French CAC 40 is not acting well either. Since April 10, the 200 day moving average which is currently at 3217.06 has been acting as resistance to advances in the index.
Australian ASX is a terrific performing index having reached a high of 4515 last week, which is the highest price for the index since the week of August 1, 2011.
The German DAX index closed nearly 300 points below its 50 day moving average of 6844.96, and has not been above this moving average since April 3. The next area to watch is the 200 day moving average at 6203, which has provided support going back to late January.
